Jan

9

Dear Dailyspec,

Do you think there is a need and market for alleviating the pain when being different hurts?

On any given day we have many people on the site that feel differently and are proud and pumped up about it with all the wonderful possibilities it offers. On a good day, feeling different means feeling free and unconstrained and the world is your oyster and playground.

I know however that there is a dark side to feeling different and on a bad day it can get really dark. On such a day you can go from feeling on top of the world to wondering if you know anything about anything especially after an, "I can't believe I just did it again. How can such a smart guy as me do such a f-in stupid thing AGAIN!"

Having spoken to a number of site members over the years and I know that this is not an uncommon feeling, it's just not part of the spoken culture here.

One of the top things I like about the site is that it is a group of people who appear to give a damn and are making a difference on so many levels. I'm thinking that our giving a damn should extend to caring about each other especially during those bad times when some people go "radio silent" and hear from them for a while (and it wasn't to go and kick butt out in the world).

Here's my question: How prevalent are the dark thoughts of feeling different when you're in the negative end of it, how dark do you think they get and if so, what do you think the need and market is for alleviating some of those thoughts and feelings? I don't know about you, but if and when I were to hear about a member of our site blowing their brains out, it would get to me (especially me being a former shrink and specialist in suicide) and I would think that I, and we,  missed something important.

The site is a special group and I'm honored to be a member.

Wishing you all the best,

Mark

Jan

9

 To what extent are speculators like the wolves in this very interesting brief documentary on Yellowstone's ecosystem?

Gary Rogan writes:

Clearly the both the wolves and speculators improve their respective ecosystems, so in that sense they are alike. As far as I can tell speculators provide one main benefit to the world: they remove irrational anomalies from markets by making a profit off any irrationality they are capable of perceiving. They also provide liquidity under difficult circumstances, which could be thought of as a special case of the previous function. Is it the same as controlling the overgrazing deer? Seems like a stretch, but if I were on debate team where I'd have to argue this point, I'm sure I could come up with some plausible arguments.

Jan

9

 Mr. Sogi has posted some very informative things on understanding snow pack and avalanche likelihood.

Here is an interesting article on the science behind avalanches and some recent technological advances in avalanche survival: the avalanche airbag backpack.

This second link is a one minute video of an actual avalanche survival: Snake River Float Avalanche Airbag Save.

Jan

9

Investors in U.S.-based funds poured $36.5 billion into stock funds in the latest weekly period, marking the biggest inflows on record as U.S. stocks surged to record highs, data from Thomson Reuters Lipper service showed on Friday"

They forgot to highlight the 18 billion outflows the week before. I don't have access to this Lipper data feed, but it would be interesting to search for a relationship between inflows/outflows (values, changes, streaks) and prospective returns. Copper the public at all times?

anonymous writes: 

Check out trim tabs… .

Jan

9

 Try playing this hold'em game mano a mano against the computer which has solved limit games with two people using artificial intelligence.

Ed Stewart writes: 

This article has an interesting quote perhaps relevant to our field:

"Another change (In the algorithm) involves skipping the usual step of averaging the latest strategy with all previous strategies; the algorithm just uses the most recent strategy.

"The algorithm goes from three steps to two steps," Burch explains. "We throw away the final step."

Jan

7

We regret to inform you that Edward T. Dunne (more simply know as Ed, or Mr. E), a longtime friend and major inspiration for this site (in fact he was one of the 4 spec list founders, back in 1998), died on Monday of a heart attack.  To honor his memory, the Dailyspec will be in mourning for 1 week.

Information about the memorial service can be found here .

Some memories of Ed. He knew more about the technical details of the infrastructure of every market than any man alive. He always knew what the current and future weather conditions of every country in the world were and would call you up to wake you up , to stay out of the cold, or beware of a coming earthquake or tsunami, or get out of your positions.

He was the inventor and early user of many of the financial innovations in the fixed income and energy markets. He was a loyal friend who would always be by your side in a time of need.

He played a great piano, and confided that several of the pieces that Billy Joel and Chris Rock sang, he wrote for them.

He liked to tell you that grains were sure to go thru the roof because he had just driven thru the farms in Iowa and could tell you exactly what the growing conditions were.

When an attractive woman was in the audience, he would confide to her that he personally owned 50% of the entire world wide soybean crop and could guarantee that his market call would be rite.

The last time I saw him we sang Old Man river together . He had a great bass voice, and a beautiful operatic voice. The last time I spoke to him he called me up at 1 am to tell me that there was conspiracy going on in France particularly and that a eminent personage I mite have wished to communicate with was likely a spy, and that any contact with him mite bring us all down.

I had the pleasure of lending him money when he was in need, and he confided to me that he didn't wish to sell any of the 5 or 10 business magazine he owned at this time as they were worth in the hundreds of millions but he didn't want to sell them now because he cared for the employees.

When he entered a room, all conversation would stop and he would sit in a big arm chair and stentorianly regale the hundreds in attendance with the latest conspiracies that were going on, and how he had made billions by seeing thru it.

He liked to confide that he had picked up a check for the junior members of a firm, because of oblige. He was very proud of his son and confided that he was the best trader and squash player in the firm and was running it, except for the boss.

He and I liked to talk about his ancestors, who was the head of Tammany Hall, and the best handball player in the world and the power behind the building of the Brooklyn Bridge and every other important thing that happened in NY in those days.

If there were an attractive woman in the room, he would let her know just how powerful he was and all attention from the woman would gravitate to him. He liked to send 200 newspapers from around the world to you every day so that you could not be the only one to miss out on the skinny.

He confided that he was one of the three people who had seen the keys to Rebecca and in that book, it told him what each day was going to bring for the next 1000 years in the markets.

He was a character out of Shakespeare ( Falstaff ), Louis Lamour ( Old Doc Yak ) and Rabelais ( Pantagruel ), and he loved to play the role. No one knew how to work the phones better than him, and he loved to call up important talk shows and get on with his certainty of being connected with his battery of phones, only to get the host in a conversation that would move markets in his direction.

He grew the best tomatoes in the world, and caught the largest tuna in the world in his boat, and would often bring a portion of two of tuna to the spec parties. He was a very good athlete surprisingly mobile, and confided that he once won the pivotal game against Princeton.

He often had personal ones on ones with the Chair of the Fed at Princeton soirees which only he and a few select friends were allowed to attend. He could game the system and pretend to be various persons in Email better than anyone in the world.

He confided that his bonus for the last year was in the nine figures but that he hadn't taken it for fear that it would create too much havoc. He loved to call people a girl if they made a market prediction based on regularities that was in an opposite direction from his recently taken 100% gain.

He and Yale Hirsch were always fighting about his conservative views and Yale's opposite and Yale demanded a vote as to who would stay on the list, and he won the vote 100 to 1.

He loved to tell you how he just made 100 million and was up 100% in the
month, and better yet, he got it from the pockets of the atheists,
people of  the wrong persuasion, immigrants, and liberals.

I could go on, but there never was a man like him. He was powerful, multi-talented, omnivorous, ad totally sagacious, and completely cognizant of all his assets, and he only wished that you could share in them. There never will be one like him and the world is a much smaller place. He was highly religious, and certainly believed that he would be watching over us in the unlikely event that he ever died, which was impossible because he had just lost 50 pounds and exercised every day. Vic

Jan

7

Ed Dunne was an endless number of different people for the endless number of different people in this world. Appropriate to each and appropriate for every occasion.

My initial year on the list led me to a feeling that he is a Samurai, ever ready for a battle with a massive sword, on any idea that touches speculation remotely. As I got to eventually know him somewhat closer, I realized he was an even greater Monk ready to give as well.

Full of wisdom, his fatherly advice was encouraging, realistic and purposeful.

I will recount just one anecdote, how he always set examples for one to emulate:

The first and the only time I met him in person was in the summer of 2011. I was packing my bags from a hotel off Wall Street to leave for India and meet with Ed Dunne for an hour before I set out to the airport. I was expecting a man in his 30s with the body of a baseball player.

He walked in to the Hotel Lobby and I found a man with the body of a baseball player at 70 perhaps. Yet, the same energy, the same vibrancy as he always emanated on our Googletalk chats (he used to love offering as gifts free accounts on gmail.com to everyone), phone calls and emails was radiating.

During this meet-up I realized he personally drove down 200 miles as his scheduled car pick up failed on him. He didn't want me to go back disappointed without meeting with him and kept his word.

While he appeared to have very strong views against any specific persons, it was to my mind his penchant for just skimming the truth. He always loved you. Even during the days that it seemed you and he are at odds, he would be ready to gnaw the flesh out of any face that may even begin to utter anything unseemly. Yes, I knew it from the very moment he has immense love and respect for you. When he one day asked me about you, I hesitated at first and then eventually told him, "When two big boys appear to be at odds on the school soccer field, stay apart has been my mantra since eventually the two big boys are the two big boys." He fumed back, " you are too smart" and then after a pause recounted endless stories of your and his camaradries and how you both went out of your ways to care for each other over a long time.

How will I ever find anyone who can take his place?

- Sushil

Jan

7

I first met Ed sometime in 1997 or 1998. I was in graduate school and trying to earn a few bucks by working as a data cleaner and spreadsheet builder at a hedge fund not far from the university. I and the rest of the staff worked in cubicles in the  middle of a big trading room, while the important people had glass enclosed offices around the perimeter. One of these people, a well dressed, tall and large gentleman soon introduced himself as Ed Dunne. In the following few days he would often stop by and chat about what was going on in markets all over the world. Most often I could see him in the office of the head of the firm, the billionaire Mr. Why, talking and gesturing while Mr. Why nodded politely from time to time. I never talked to Mr. Why, but I felt I had a indirect link to him via my conversations with Ed. And he knew or spoke with so many other important people in the investment world.

Ed was to me was the quintessential expert on international financial markets. He would explain how hedge funds and re-insurance companies work together, how oil can be stored in idle ships for later delivery, what factors affect the prices of grains, and a hundred other things. All things that I was very curious to learn about. To become as savvy and as wealthy as Ed seemed within easy reach if I could have a few more discussions with him. One time he invited me to attend one of his meetings at Princeton University with several economics and statistics professors (though I did not see Ben Bernanke there), and afterwards to a sumptuous lunch in a nearby restaurant. That was just one example of his generosity.

Later on Ed claimed that he introduced me to Victor and got me the dream job that I now have. I think it was more complicated than that and that there were several people involved but I don't remember the details. But certainly Ed played a role and I am grateful to him for that.

Jan

7

You always knew where you stood with Ed. He didn't mince words.

And you always knew what he stood for and believed in. His debate style was very much scorched earth which alienated many. But he was forgiving and quickly forgot the interactions ready to move on with the relationship.

On a few occasions Ed and I tangled….and he would usually (always) eviscerate me.

But from these interactions, I learned that I either needed to shore up my beliefs/positions with stronger/better research….or……..was forced to recognize the cognitive dissonance that was bouncing around in my head from the new information/POV Ed would expose me to.

But what I found most interesting about this man that I never met in person was the kindness he was capable of…..and the layers of his kindness.

On the list, he was always rough and tumble and ready to rumble and deflate what he saw as ballyhoo.

On private emails he was often cryptic and quick to criticize. But I never took the criticizer personally. I saw it as generosity…him giving of his time to help learn what was so obvious to him….but elusive to a mere mortal such as myself.

On Gmail chats, though, he was a nice guy. He was a like a coach/teacher helping me to learn and grow and come to my own conclusions (with his guidance, of course).

But on the phone….well that was a different story. He was a larger than life figure with a booming but kind voice. He was always glad to spend a few minutes talking. And even though we never met, I always felt like I was an "old friend" when we spoke.

For some reason, when I think of Ed and his emphatic beliefs and ability to express those beliefs, I always thought of that firebrand founding father, Patrick Henry.

Ed was a founding father of our group, so in his memory, I leave you with Patrick Henry's most famous speech.

http://www.history.org/almanack/life/politics/giveme.cfm

Jan

7

Though i am but one of myriads of females who admired and adored him, Ed was a keeper, and a sagacious pip whenever he appeared, and was gargantuan, as Vic indicated, in all of his parameters, including his appetites and affections. Whether what he said turned out to be accurate or no, his views were persuasive and compelling, and he was a titan in the many ways that few can hope to emulate. We shall all miss him greatly, and among those, I miss him already as a rapscallion prince who flashed by our way for too brief a transit. Lucky were those who spent much time with him. I shall cherish the times i got to speak and listen to this cornucopoetic man. I think he is looking over us all and smiling, knowing he is so missed. and keeping his angel fingery-wings crossed that his predictions will come to fruition, no doubt, within the next fiscal quarter.

Jan

5

 Here's my prediction: the DXY is on it's way towards 100…110 or 120. I'm buying calls on the UUP and will check in on them in about 90 days.

Alston Mabry writes: 

And if you wanted to hedge that bet, you could go long silver, in whatever safe format you prefer…calls on AGQ being a safer way to do it. But you'd need to check in on them often.Just in the spirit (ghost?) of making an actual call.

Jan

5

 Media advice is of little worth, except for a fade perhaps. After all, the primary purpose of the typical financial reporter is to make his/her quota in inches. Quantity over quality. The purpose of the financial media is to sell ads, make money, and hook you like a fly fisherman casting a fly at a trout. The TV financial media has been taken over by guest experts(touts). I avoid reading or listening to them like the plague as I prefer to make my decisions looking through my own lens, not the lens of others(who are observers, not players), second hand.

This broken down old grain trader looks at the financial media with a very flinty eye, much like one looks at the guys at the track who sell tout sheets when you walk past the turnstyle. Make your own decisions, keep your own counsel, and play your own hand. If you need advice, there are private subscription services, for a high price, that might, sometimes be worth listening to, but unless they have skin in the game avoid them like the plague.

Craig Mee writes: 

Everyone is now a salesman trying to justify themselves…listener beware. Funny how the country boys seem to do less talking and more listening and see things more clearly. I suppose that happens when you're not selling your soul on every deal as a means to pay the rent.

Jan

5

 For those with a bloomberg professional terminal, "live" bitcoin prices are now available. The symbol is XBT <CURNCY> <GO> … so we can now run all of those essential analytics.

But standing in the way of this analysis is the fact that the forward, interest rate parity, etc. pages are all blank. Because they don't exist….

VCCY <GO> is the "virtual currency monitor" page.

Henrik Andersson writes:

Rocky, I found a way for you to short Bitcoin. btcjam.com is a peer 2 peer Bitcoin lending web site. If you sign up under the alias 'RockyHumbert' I promise to help fund the loan provided you pay a decent rate….

Rocky's Ghost writes:

Rocky will be heading back to the Northwest Territory shortly, but before he departs, he wants to give a shout out and thanks to Henrik for what Business Insider ranks as the single worst investment of 2014. Bitcoin declined from about 800 to 314 over the course of the year (which is even worse than Rocky's daughter's Mattel stock which she owns for the "long run". )

If Rocky were going to make a similar bet for 2015, it would be to buy calls on UUP. Wishing everyone a happy and healthy 2015.

1. Trade with the trend.
2. Ride winners and cut losers.
3. Manage risk.
4. Keep mind and spirit clear.

Ralph Vince writes:

Interesting post indeed. I have no predictions for 2015, other than to put as much as I can behind my trading. As there is more than one way to skin a cat, in reading Rocky's Ghost's post (and I admire his market acumen as I do his physical self) I would amend his four points, most interestingly, as follows:

1. Trade as though the data is entirely random and fat-tailed (RG :Trade with the trend.)
2. Always be taking profits (RG :Ride winners and cut losers.)
3. Manage risk. (RG: Manage risk.)
4. Shake it - but don't break it (RG: Keep mind and spirit clear.)

Point #3 bears repeating.

anonymous writes:

Some Seykota additions:

#5. Follow the rules.

#6. kKnow when to break rule #5.

Jan

5

 "Millennials regard McDonald's as unhealthy, outdated and downmarket"

I Noticed the dismal quality and service on a road trip in 2013, were I tried all the "new" menu items and found them worse than sub-par.

Ive noticed that many of the Downtown McDonalds (Chicago) are underclass hangouts nearly 24/7, to the extent I would not take my kids to one, period. Even the neat "Rock n Roll McDonalds" was recently hit by a flash mob, as you can see here.

I was happy to see the rumor that the Ackman might be targeting the stock, would love to see a shake-up including (first thing) removal of the failed CEO before things get worse. And I'd bet that there is a mountain of bureaucracy to cut.

Gary Rogan writes: 

The first article seems like a not-too-subtle Shake Shack PR piece. The Shake Shack propaganda is suddenly everywhere, helped by the slow news period when the IPO was announced and its NYC roots. The hamburger marketplace is just crap, pure and simple. It's saturated (with fat and otherwise) and a lot of exploration of alternatives has occurred due to the age and low barriers to entry of the basic concept. There is not that much to be done about McDonalds unless someone serendipitously hits some goldmine with some random menu item or trend. It may make sense for them to be associated with the urban delinquents if a lot of them congregate and eat there. Or maybe go full Angus and get the upscale clientele. Probably six of one, half a dozen of the other. There are better places to fish for both growth and value.

Ed Stewart writes: 

I agree, it was definitely a Shake shack PR placement. However I also agreed with most of the criticism it offered of McD, including the notion that niche, more targeted business models are more workable given the transformation from a relatively homogeneous population.

At this point I don't think the underclass is big enough to sustain a chain as big as McDonalds in the USA. The issue is that when they become a critical mass, they start to lose everyone else. Plus, the antics increase operating costs — stores with that situation become tainted very quickly.

Chipotle has been a great success for investors, but it is a health disaster. It's amazing that it is mentioned as one of the new "healthier" options.

Gary Rogan writes: 

I guess I'm simply looking at the present situation and not seeing much of a nationwide opening, either in terms of "fixing" McD or some deterministic success for a wide-footprint competitor.

McD and pre-existing large competitors have penetrated every nook and cranny of the US market (and quite a bit of the world's). This is not new. McD historically has been somewhat experimental as replicating local menu item additions and any other gimmicks on a wider scale.

There are "upstarts" like In-N-Out that are actually more than half-century old that have expanded greatly in the west and are still rapidly expanding. Should any gimmick like serving wine with your burger work anywhere they will copy it in a nanosecond or someone else will. Yes, it's possible that there is some solution either for an existing player like McD or a new entrant that will produce a Chipotle-like effect nationwide, but knowing in advance that anything in particular will work in the nationwide, and more so in the world-wide market seems like a risky bet.

As a rule, restaurants fail. Fast restaurant expansion plans usually fail. Once in a blue moon something succeeds and your availability bias will always move you in the direction of pointing at it and saying "See!", but it's still risky to predict a great success no matter what they do.

Jan

5

 Excerpted from Smarter Every Day:

I never thought I'd see diesel for $π again! Oh, and gas under $2 is cool to. Thank you, geopolitics. The Saudis are keeping production high. There could be several reasons for this. The main reason is thought to be that they want to maintain control of the major oil supply infrastructure. If the price of oil goes too high, others will be able to make money selling it, then these competitors will be able to build up their own infrastructure. The OPEC nations are making an investment in their future by trying to kill future competition. They kill future competition by never allowing it to grow in the first place. It's a pretty interesting economics problem if you ask me. You limit FUTURE supply by flooding PRESENT supply. Whatever their reason for doing it…. it's pretty clever.

Gibbons Burke writes: 

I don't think the Saudis could do this sort of thing on their own without it serving some other political rationale which serves some sort of United States strategic interest. It would be too nakedly an act of economic war on the U.S. oil producers whom are providing enough supply for the U.S. To become more self sufficient for oil needs, even to the point of becoming a net exporter.

The only way the Saudis could make this happen is if they had the approval of the White House, and the White House couldn't and wouldn't attack its own domestic producers unless it had a treasonous animosity to its own corporate energy producing infrastructure (which it seems to have), and could justify allowing the Saudis to squeeze our balls in the name of doing the same thing to Boris Putin for his Ukranian hegemony and intransigence.

Jan

5

 One major problem with diet prescriptions is that they assume people are animals or machines. They only pay attention to the material side but miss the spiritual side.

I think the way to go about eating should be first maintaining a healthy spirit and then eating and savoring whatever the spirit wants. What it wants are fine cuisines rather than simple food. When great tastes are savored, the spirit is satisfied and wants nothing more to eat. Great cuisines also make us happy and high-spirited. The happy spirit will then take care of body. Think about whose body it really is. It belongs to the spirit anyway.

Jan

5

Here is some intriguing research from a book my psychiatrist son is working on:

"They found asymmetry between buy and sell order placement. Sellers consistently place their sell orders "further from the market" (i.e. further from the best quote) than buyers do with their bid orders. On average, that is, buy orders are "closer to the market" than sell order. Asks were placed, on average, 23.4% further away from the market than bids were."

anonymous writes: 

Perhaps this has to do with endowment effect? The fact that people often demand much more to give up an object than they would be willing to pay to acquire it.

Jan

5

Here is an interesting paper and nice reference to a concept called the Probability of Backtest Overfitting (PBO).

Abstract:

We provide some new tools to evaluate trading strategies. When it is known that many strategies and combinations of strategies have been tried, we need to adjust our evaluation method for these multiple tests. Sharpe Ratios and other statistics will be overstated. Our methods are simple to implement and allow for the real-time evaluation of candidate trading strategies.

Jan

5

Here is an investigation of the puzzling fact that individual income inequalities have not changed in half a century in the United States (if we trust the Census and Treasury data) but family income inequalities have (again, if we trust the government data).

Jan

5

 Do you have any thoughts on sports streaks? The article below I ghost wrote. My feeling on streaks must be mathematical that they almost always occur in 1. a small field of players/teams, and 2. in a weak field of player/teams. A large field of talented players is stable and produces a frequent change of champions. Therefore, when one sees sports streaks it's usually in minor sports or when it's bear times for that game.

Top 10 Streaks

By Brett Elkins and Jim Spittle

They call them the Streaks!

These are the ten players with the Greatest Streaks in Racquetball History.

#10 Robert Sostre and partner Freddy Ramirez team up for 12 consecutive undefeated years in all Pro/Open 1-Wall New York tournaments from 1997-2009 which includes the events that are considered by most to be the Pro Championships of One-Wall.

#9 Lynn Adams ranks the World #1 or #2 every pro season between 1980 and 1991. With six women's Pro National Singles titles (1982, 1983, 1985-1988) and Player of the Year eight times (1982–88, 1990).

#8 Paola Longoria whose consecutive LPRT pro tour win streak ended after 142 consecutive pro singles LPRT match wins over 3 and 1/2 years. During this time, she lost only 18 games in those matches (best of five games). And her international streak still remains intact where she hasn't lost in any major world competition since the 2011 Pan American Games in Guadalajara, Mexico.

#7 Peggy Steding goes undefeated for almost two years in 1973 and 1974 winning the IRA National Singles and Doubles Championships both years, as well as every other tournament she entered. Rarely did an opponent score ten points in a twenty-one point games against this enduring Texan Racquetball Pioneer.

#6 Charlie Brumfield and Steve Serot go undefeated in doubles from 1973 to 1978. Brum and Serot won the 1973 IRA National Doubles, the 1974 National Invitational Doubles, the 1976 NRC Pro National Doubles, the 1977 IRA/IPRO National Doubles, and the 1978 IRA/IPRO National Doubles titles without dropping a match.

#5 Charlie Brumfield wins twenty consecutive tournaments in 1972 and 1973 including the 1972 IRA National Singles, the 1972 National Invitational Doubles with Dr. Bud Muehleisen, the 1973 IRA Nationals Singles, the 1973 IRA National Doubles with Steve Serot, and the 1973 National Invitational Doubles with Dr. Bud Muehleisen.

#4 Cliff Swain is at the top echelon of the pro game for twenty years … winning his first two pro stops in 1985 and his last two in 2004. In between, Swain won another seventy events and finished six seasons ranked #1 in the World, and five seasons at #2.

#3 Brian Hawkes rules the Outdoor courts winning twenty National Singles Titles over three decades in truly dominant fashion.

#2 Marty Hogan goes undefeated for over a year from October 1978 to December 1979 while playing three versions of the game. Hogan wins the Pro Nationals, The Outdoor Nationals, and The Paddleball Nationals in one year for the sports only Triple Crown during the most competitive and deepest draws in pro racquetball history.

#1 Kane goes undefeated for almost three years winning 137 consecutive matches and rarely losing a game. King Kane dominated the sport at the highest level like no other. 

Richard Owen writes: 

Great list and analysis from Bo. On a slightly different tack there's also people like Usain Bolt, who runs in a very deep and talented field. Same with Pete Sampras, Gary Kasparov, Lance Armstrong, etc. I guess "weak" could be defined in a relative sense, but that would makes me wonder if the only reason they have a streak is because they are the only ones good enough to have a streak. So technological advantage? Usain's height, the Finns' invention of interval training, Armstrong's doping. But wait, most of Armstrong's competitors were probably doping in that era too… How to explain? There seems to be an aspect of ever changing cycles in sport too. Everyone does endurance, so you do HIIT, you win. Everyone copies, etc.

Jan

5

 For a number of years I've been counting the number of private jets at the airport. A surprising number of the world's wealthiest people have homes here and fly here in their jets. Movie stars also like to vacation there. The theory is that the captains of industry or flexions as Chair likes to call them have the inside track on the prospects for the coming year, so a lot of jets is a bullish sign. In recent past years there have been so many jets, over 70 that they have had to turn them away and park them in Maui. This year I only counted 35. Though there were much fewer, they were the larger G4's and 16 plus seater, many brand new and shiny. Not many of the little Lear's where the poor multimillionaires have to bend over to get in cramped little cabins. The billionaires travel back and forth at will and can sleep and dine comfortably with bedrooms and baths in the jets. So the private jet indicator might indicate lowering expectations, except for the multi billionaires. Unfortunately I have not kept track or quantified this but my recency heuristics tell me there may be some correlation.

Jan

5

I was under the impression that the movie The Gambler was in the vein of slick, high intellectual type game players. I guess I was out of the room when wife and son were chatting about it. Do not waste your money. Horrible film beyond words. The only real winner is a lazy college BB player who shaves points for dough. If you want to take someone to see what losing on steroids looks like, then by all means, please see the flick.

Jan

5

 The part from Ecclesiastes that Runyon missed, "but time and chance happeneth to them all," was covered in another of Runyon's gems that I have shared before, the one mentioning that all life is 6:5 against. I think the Bard deserves to be included with this list and one of my favorites that is related is from Hamlet:

"Not a whit. We defy augury. There's a special providence in the fall of a sparrow. If it be now, 'tis not to come. If it be not to come, it will be now. If it be not now, yet it will come–the readiness is all."

I can still hear my college professor repeating this line with all his British vigor. The readiness is all!

Jan

4

This time of the year people often consider rebalancing their portfolio. So naturally the question comes up how to rebalance.

Should a person bet against last years trends, a "reversion to the mean" strategy?

Or should a person do the opposite?

That is should a person continue to follow the trends? To quantify this question, first I had to determine what is a "good trend" and "what is out of favor".

I started with the SPY (S&P spider) and compared each sector to it. However, a direct 1 to 1 comparison is not fair to the less volatile sectors such as utilities to compare them to the faster moving sectors such as tech or financials since 2007. To find the speed of each sector I used the prior years daily log normal returns compared to the SPY daily returns. These speeds are usually relatively constant, but since the crisis, the "financial sectors" speed has changed considerably from year to year.

Once I had a relative speed I was able to look at and "actual less predicted" comparison for each year for each sector to determine if its performance was "trending" or "out of favor" compared to the S&P. The predicted = the "speed X SPY return for year. The "actual" was the sectors log normal return for the year. If the sector out performed, the "actual - predicted" should be positive. And if its out of favor negative.

Since following a trending sector or not, is basically is a yes or no question, if it was totally random the chance of a trend continuing or not should be 50/50 like a coin toss. Therefore, I used the cumulative binomial distribution to test if it is statistically significant to follow the trend or bet on reversal. if the results of the binomial dist. are close to 0% a reversal strategy is statistically significant. If the distribution is close to 100%, a trending strategy is statistically significant.

Ok,

A little about me: currently I am taking a break from the markets, except for managing my own money. This is after 25 years at 2 different insurance companies as a investment actuary specializing in risk analysis. I am teaching high school math, from 8th grade to 12 grade pre calculus. I may teach some night classes next year at NWOSU, once I get 12 credit hours of teaching courses. With the 5 lesson plans everyday I prepare and the college courses I am pretty busy when classes are in session. Within my course, I am trying to introduce the markets to the students. This semester I will have the all classes invest about $2,000 of my money and give the classes any profits for their Senior year prom.

My future aspirations would be to set up a insurance company that has cost effective delivery system and meaningful yet meaningful analysis to help the middle class manage risk and investments better. I have some ideas on how to do this. But it will be a few years, before I am ready.

In general, the results imply in recent years:

Follow the trend in Consumer Staples, Financials, Energy, Consumer Discretionary, Utilities and Materials
Trend does not matter in Health Care or technology
and Reverse the trend in industrials.

To find the "2015 expected overperformance/(underperformance)" for each sector I did the following: (Binomial Distribution - 50%) X (2014 Actual -Predicted)

I get the following expected over/(under) performance percentages

Overweight
Utilities 3.4%
Consumer staples 2.1%
Industrials 0.8%

Neutral
Health Care 0%
Technology 0%
Financials (0,4%)

Underweight
Consumer discretionary (1.0%)
Materials (-1.4%)
Energy (-4.5%)
 

Below is a comma delimited file of the results.

Log Normal Returns ,SPY,XLY,xlp,xle,XLF,xlv,xli,xlb,xlk,xlu
2014,13.63%,09.45%,15.84%,-08.32%,15.17%,23.44%,10.86%,07.91%,17.52%,27.08%
2013,27.99%,35.57%,23.33%,23.31%,30.38%,34.65%,34.03%,23.10%,23.29%,12.28%
2012,14.84%,21.19%,10.21%,05.08%,25.01%,16.02%,13.92%,13.71%,14.24%,01.02%
2011,01.87%,05.81%,13.18%,02.80%,-18.84%,11.68%,-01.10%,-11.55%,02.61%,17.93%
2010,14.02%,24.28%,12.91%,19.71%,11.28%,03.23%,24.53%,18.68%,10.78%,05.20%
2009,23.39%,34.05%,13.33%,19.68%,16.18%,17.82%,19.94%,39.34%,41.40%,11.07%
2008,-45.88%,-40.02%,-16.27%,-49.35%,-79.62%,-26.53%,-49.01%,-58.11%,-53.62%,-34.13%
2007,05.02%,-14.71%,11.96%,31.41%,-21.29%,06.92%,12.65%,19.97%,14.37%,16.90%
2006,14.71%,16.91%,13.54%,16.59%,17.27%,06.81%,12.70%,16.87%,11.49%,18.96%
2005,04.72%,-06.80%,02.75%,33.79%,06.03%,06.23%,02.68%,03.97%,-00.33%,15.19%
2004,10.16%,12.13%,07.41%,29.22%,10.30%,01.27%,16.37%,12.68%,05.51%,21.20%
2003,24.83%,31.63%,10.58%,22.97%,26.62%,13.91%,27.63%,31.78%,32.68%,23.48%
2002,-24.31%,-20.69%,-22.41%,-15.88%,-15.93%,-00.78%,-28.19%,-05.50%,-48.09%,-33.95%
2001,-12.51%,12.00%,-10.48%,-20.02%,-09.91%,-00.82%,-11.13%,02.10%,-26.60%,-13.95%
2000,-10.25%,-18.47%,22.74%,21.85%,22.95%,-12.52%,06.48%,-17.65%,-54.24%,20.27%
1999,18.56%,17.83%,-15.35%,16.48%,02.60%,17.81%,19.77%,20.59%,50.15%,-04.51%
Totals,80.79%,120.18%,93.25%,149.31%,38.20%,119.16%,112.14%,117.90%,41.17%,104.04%

Speed Estimate Relative to S&P,,XLY,xlp,xle,XLF,xlv,xli,xlb,xlk,xlu
2014,,105.03%,81.64%,108.02%,120.29%,94.23%,107.76%,111.15%,87.74%,72.16%
2013,,99.40%,57.93%,124.14%,124.05%,74.29%,111.37%,122.00%,105.19%,37.77%
2012,,100.14%,58.08%,127.03%,136.47%,80.47%,115.94%,127.69%,93.60%,60.85%
2011,,108.48%,59.11%,120.54%,130.95%,71.96%,118.06%,125.48%,97.95%,69.57%
2010,,108.89%,49.91%,118.68%,213.41%,54.44%,113.93%,113.40%,88.64%,54.51%
2009,,92.48%,48.55%,125.19%,146.97%,60.19%,85.38%,97.64%,92.44%,74.39%
2008,,97.66%,53.64%,124.48%,134.61%,66.09%,90.64%,123.71%,88.71%,78.45%
2007,,98.88%,61.60%,125.68%,99.83%,71.08%,99.25%,135.82%,118.18%,62.52%
2006,,107.96%,70.65%,138.57%,97.45%,72.36%,98.78%,120.55%,94.08%,97.03%
2005,,99.28%,61.44%,74.81%,95.89%,83.96%,102.62%,118.46%,125.12%,56.33%
2004,,111.80%,65.93%,49.89%,111.18%,80.40%,95.08%,95.76%,134.75%,67.12%
2003,,93.89%,49.63%,82.38%,107.92%,77.07%,97.07%,85.41%,138.84%,80.10%
2002,,97.73%,31.58%,36.28%,92.63%,85.41%,102.63%,76.42%,177.56%,26.05%
2001,,79.12%,27.08%,18.66%,100.15%,64.96%,77.42%,36.04%,142.74%,30.38%
2000,,92.56%,79.97%,41.80%,117.78%,83.89%,58.42%,41.69%,125.35%,53.30%
1999,,92.56%,79.97%,41.80%,117.78%,83.89%,58.42%,41.69%,125.35%,53.30%
average,,99.55%,57.12%,94.41%,121.97%,74.72%,98.29%,102.08%,114.06%,61.37%

Actual - Predicted,,XLY,xlp,xle,XLF,xlv,xli,xlb,xlk,xlu
2014,,-04.87%,04.71%,-23.04%,-01.22%,10.59%,-03.83%,-07.24%,05.56%,17.25%
2013,,07.75%,07.12%,-11.45%,-04.35%,13.85%,02.86%,-11.05%,-06.16%,01.71%
2012,,06.34%,01.59%,-13.77%,04.77%,04.08%,-03.28%,-05.23%,00.35%,-08.01%
2011,,03.78%,12.07%,00.54%,-21.29%,10.34%,-03.31%,-13.90%,00.77%,16.62%
2010,,09.01%,05.91%,03.06%,-18.65%,-04.41%,08.55%,02.78%,-01.65%,-02.44%
2009,,12.42%,01.97%,-09.60%,-18.20%,03.75%,-00.03%,16.50%,19.78%,-06.33%
2008,,04.78%,08.34%,07.76%,-17.87%,03.79%,-07.43%,-01.35%,-12.92%,01.86%
2007,,-19.67%,08.87%,25.11%,-26.30%,03.36%,07.67%,13.16%,08.44%,13.76%
2006,,01.03%,03.15%,-03.79%,02.94%,-03.83%,-01.82%,-00.86%,-02.35%,04.69%
2005,,-11.48%,-00.15%,30.27%,01.51%,02.27%,-02.16%,-01.61%,-06.23%,12.53%
2004,,00.77%,00.71%,24.15%,-01.00%,-06.90%,06.70%,02.95%,-08.18%,14.38%
2003,,08.32%,-01.74%,02.51%,-00.18%,-05.22%,03.53%,10.58%,-01.79%,03.59%
2002,,03.07%,-14.73%,-07.06%,06.58%,19.99%,-03.24%,13.07%,-04.92%,-27.61%
2001,,21.91%,-07.09%,-17.68%,02.62%,07.31%,-01.44%,06.61%,-08.73%,-10.15%
2000,,-08.99%,30.93%,26.13%,35.02%,-03.92%,12.47%,-13.38%,-41.40%,25.73%
1999,,00.65%,-30.19%,08.72%,-19.25%,02.24%,08.93%,12.85%,26.89%,-14.41%
Totals,,34.82%,31.46%,41.86%,-74.87%,57.29%,24.18%,23.87%,-32.53%,43.19%

positives,,XLY,xlp,xle,XLF,xlv,xli,xlb,xlk,xlu,Total yr.,binomial yr
2014,,,0,1,0,0,1,0,0,1,1,4,50.0%
2013,,,1,1,0,0,1,1,0,0,1,5,74.6%
2012,,,1,1,0,1,1,0,0,1,0,5,74.6%
2011,,,1,1,1,0,1,0,0,1,1,6,91.0%
2010,,,1,1,1,0,0,1,1,0,0,5,74.6%
2009,,,1,1,0,0,1,0,1,1,0,5,74.6%
2008,,,1,1,1,0,1,0,0,0,1,5,74.6%
2007,,,0,1,1,0,1,1,1,1,1,7,98.1%
2006,,,1,1,0,1,0,0,0,0,1,4,50.0%
2005,,,0,0,1,1,1,0,0,0,1,4,50.0%
2004,,,1,1,1,0,0,1,1,0,1,6,91.0%
2003,,,1,0,1,0,0,1,1,0,1,5,74.6%
2002,,,1,0,0,1,1,0,1,0,0,4,50.0%
2001,,,1,0,0,1,1,0,1,0,0,4,50.0%
2000,,,0,1,1,1,0,1,0,0,1,5,74.6%
1999,,,1,0,1,0,1,1,1,1,0,6,91.0%
total sector,,,12,11,9,6,11,7,8,6,10,80,92.2%
Binomial sector,,98.9%,96.2%,77.3%,22.7%,96.2%,40.2%,59.8%,22.7%,89.5%,92.2%,

same sign as last year,,XLY,xlp,xle,XLF,xlv,xli,xlb,xlk,xluTotal yr.binomial yr
2014,,,0,1,1,1,1,0,1,0,1,6,91.0%
2013,,,1,1,1,0,1,0,1,0,0,5,74.6%
2012,,,1,1,0,0,1,1,1,1,0,6,91.0%
2011,,,1,1,1,1,0,0,0,0,0,4,50.0%
2010,,,1,1,0,1,0,0,1,0,1,5,74.6%
2009,,,1,1,0,1,1,1,0,0,0,5,74.6%
2008,,,0,1,1,1,1,0,0,0,1,5,74.6%
2007,,,0,1,0,0,0,0,0,0,1,2,09.0%
2006,,,0,0,0,1,0,1,1,1,1,5,74.6%
2005,,,0,0,1,0,0,0,0,1,1,3,25.4%
2004,,,1,0,1,1,1,1,1,1,1,8,99.8%
2003,,,1,1,0,0,0,0,1,1,0,4,50.0%
2002,,,1,1,1,1,1,1,1,1,1,9,100.0%
2001,,,0,0,0,1,0,0,0,1,0,2,09.0%
2000,,,0,0,1,0,0,1,0,0,0,2,09.0%
total sector,,,8,10,8,9,7,6,8,7,8,71,75.4%
binomial sector,,,69.6%,94.1%,69.6%,84.9%,50.0%,30.4%,69.6%,50.0%,69.6%,,00.0%

Jan

2

 The CME and the CFTC are doing a great job at destroying the market ecology by exterminating the 'spoofers' out of the futures markets. This clever species helps maintain the equilibrium of order flow by gaming liquidity asymmetries and thus keeping the population of naive momentum front-running strategies in check. It reminds me of the extinction and later reintroduction of the wolves in Yellowstone.

Ed Stewart writes: 

I can't see how spoofers are bad for anyone but the momentum front runners, as you suggest. There must be a "god given" right to jump in front of slower moving participants that we are not aware of. I'd love to know how the spoofing practice developed. My guess is it started as a counter-strategy to neutralize front-running before it became a source of profit?

anonymous writes: 

And "they" destroyed limit orders when they busted the trades during the flash crash. I guess front-running is the only virtuous and god-favoured strategy?

Jan

2

"The race is not always to the swift, nor the battle to the strong, but that's how the smart money bets."

-Damon Runyon

Jan

1

 This book was recommended to me:

Sleights of Mind: What the Neuroscience of Magic Reveals About Our Everyday Deceptions

Stephen Macknik and Susana Martinez-Conde, the founders of the exciting new discipline of neuromagic, have convinced some of the world's greatest magicians to allow scientists to study their techniques for tricking the brain. The implications of neuromagic go beyond illuminating our behavior; early research points to new approaches for everything from the diagnosis of autism to marketing techniques and education. Fun and accessible, Sleights of Mind is "a tour through consciousness, attention, and deception via the marriage of professional magic and cognitive neuroscience" (Vanessa Schipani, The Scientist).

Jan

1

 Manifesto 2015
 
Government has no right to confer economic benefit.
The benevolence of individuals, not government, creates a just community.
Rich and poor share responsibility to build society.
The greatest philosophy of governance is the balance of executive, legislative and judicial authority.
Civility is a worthy goal.
Government is incompetent in most areas in which it is currently active.
Theocracy kills.
Our challenges are planetary.
Humans are lonely without animals.
Glorifying thugs is civil suicide.
Union members are not the only people who work. 
Be circumspect in speech, for sowing wind reaps the whirlwind.
Propaganda attacks reason.
Wealth is a great good.
Benevolence is a great good.
Achievement is a great good.
The family is a great good.
Friendship is a great good.
 
Happy New Year, one and all.

Laurel Kenner

Glassery.com

Jan

1

 A nice fund raiser typical of 5 I get from Harvard every day.

Dear Mr. Niederhoffer,

Talent, Passion, Determination, and You.

These are essential ingredients for success at the Harvard School of Public Health. With just hours left in 2014, we want to make sure you have a chance to support HSPH's faculty and students — and improve the lives of people around the world. Make a gift today.

Give Now

Give Now If you have already given in response to our year-end appeal, many thanks!

Please join us on Twitter and Facebook to inspire others to support HSPH!

Richard Owen writes:

I wonder about the economics of modern charitable fundraising. Everyone has adopted the pressure selling model of the type that would get you scolded on a consumer affairs programme if it wasn't for the fact that it's done for 'charidee'.

My old college's annual fundraiser uses a compliance script that first gets you talking about how successful and great you are and subtley brings in the college as a topic (ie. the two factors are connected) then downshifts you through about five donation configurations, the final one of which is might as well have ", or are you an ungrateful and tight bastard who won't even give £X even though you clearly can afford it" on the end.

Now you might say that such approaches have a positive ROI, so it's a good thing. But I wonder to what extent it impacts the unmeasurable flow of future large donations forgone, by turning people off the cause in the short and long terms. A compliance response is rarely going to yield a huge overshoot to the ask.

For example, my college's compliance script is of the form originally designed to sell more double glazing to grandmas. The fact that they graduated a supposedly smart bunch of people implies most will recgonise the sales techniques for what they are.

The compliance approach yields more recurring current income/donations, which the charity staff maybe, subconciously or otherwise, dont mind because it provides flows to cover salaries.

If you digitally give the equivalent to a mainstream UK chairty that, historically, you would have put in a charity bucket, it seems that most of that donation is today used to finance outsourced professional money raising firms to upscale your donation to something serious.

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